[MrsPartridge]

I'm trying to advise a young person on long term investing. I'm very much a drip investor. I like how when the market is sinking you don't need to panic because you'll get your dividends reinvested at a lower price and maybe pick up even more shares. So for me, it helps to protect myself from panic selling.

However this guy might be a better candidate for etf's. I haven't much experience with them. They're perfect for someone who isn't able or willing to monitor stocks, But, do they pay dividends? How often? I can't seem to find any info on how company dividends are treated.

Would you advise a long term investor to go the etf route for his TFSA?

 

[Jimmy]

ETFs pay dividends just like stocks and most have DRIPs too. On the BMO or Ishares site , if you click on the overview of an ETF, there is usually a section for 'distributions' . XIU, the CAN Tsx 60 Index ETF pays dividends quarterly w a 2.91% yield.

https://www.blackrock.com/ca/individual/en/products/239832/ishares-sptsx-60-index-etf

 

[GreatLaker]

Payments from ETFs and mutual funds are referred to as distributions because they may have different components. ETFs and mutual funds are called flow-through shares, because all earnings are paid out to investors (flow through) to be taxed at the investor's tax rate. Distributions mostly consist of dividends, interest, and capital gains, depending on what the fund holds. Equity fund distributions will pay mostly dividends, bond funds will pay mostly interest, and if they sell a holding that results in a capital gain that will be flow to the investor too. That's a long winded way to say the answer to your first question is yes.

Distributions are usually paid monthly for bond funds and quarterly or semi-annually for equity funds. Look at the fund's web page for trailing 12 month yield (TTM) and distribution yield. TTM yield is the total distributions over the last 12 months. Distribution yield takes the most recent distribution yield and annualizes it. Distribution yield can be misleading because some funds will have larger periodic distributions, especially at the end of the year. But really, all dividends and interest the funds holdings earn get paid out to unit holders.


For your second q it's hard to answer without knowing more about the potential investor. But to be a good individual stock investor they should be willing to learn how to analyze and select stocks, and monitor a portfolio's holdings. Tough for many young people.


There is a whole new generation of "one stop" ETFs that buy entire global markets. The investor can get a whole world of coverage from one fund. Here are a couple of pages that explain them:
https://www.finiki.org/wiki/Balanced_ETFs
https://canadiancouchpotato.com/2018/12/24/ishares-launches-all-in-one-etf-portfolios/
https://canadiancouchpotato.com/2018/02/05/vanguards-one-fund-solution/
And the bottom of this page: https://canadiancouchpotato.com/model-portfolios/

 

[MrsPartridge]

That was so helpful. I think I'll tell him to check out some etfs since his portfolio will be too small to weather the ups and downs of a handful of stocks.

 

[MrsPartridge]

https://www.blackrock.com/ca/individual/en/products/239832/ishares-sptsx-60-index-etf

Blackrock ishares looks like it has what I need. I might even study up on this and add some to my own portfolio.

 

[Jimmy]

Blackrock ishares looks like it has what I need. I might even study up on this and add some to my own portfolio.

Yes. W out getting too fancy you can own the entire CAN market w XIU or XIC or ZCN ( BMO's CAN index fund) , the entire US mkt S&P 500 ( XSP or ZSP) and the rest w an INTL ETF like ZEA ( Europe and Far East) or XEF. Fees are usually around .10 - .20%

Here is BMO's site too

https://www.bmo.com/gam/ca/advisor/products/etfs#--tabs-1549771077086-

 

[MarcoE]

Would you advise a long term investor to go the etf route for his TFSA?

Yes. Go with a portolio of four or five simple index ETFs from Vanguard or Blackrock. You'll be broadly diversified. Maybe one ETF tracking the TSX index, one tracking the S&P 500, one for international stocks, and maybe one for bonds. If you want more complexity, you can optionally include a REIT and maybe a gold ETF, but you don't have to. These ETFs will pay dividends, and you can set up DRIP so the dividends are redistributed automatically.

 

[james4beach]

Agreeing with the above, it's a great idea to hold some index ETFs inside the TFSA. Here are some potential recipes. These ETFs pay dividends and you can instruct the broker to DRIP the shares:

Portfolio option	ETF Weights	Advantages
Classic 60/40	30% XIC 30% XAW 40% XBB	Global diversification, pretty standard
50/50 balanced	25% XIC 25% ZSP 50% XBB	Bit more conservative, Canada/US focus
All weather	15% XIU 15% ZSP 50% XBB 20% MNT	Even more conservative, more diversified, less volatile

There is no single right answer and there are countless variations out there. The biggest challenge will probably be having the discipline to stick with a method for the very long term. You need to avoid the tendency to give up on a portfolio after a stretch of poorly performing years (this is easier said than done)

 

[MrsPartridge]

There is no single right answer and there are countless variations out there. The biggest challenge will probably be having the discipline to stick with a method for the very long term. You need to avoid the tendency to give up on a portfolio after a stretch of poorly performing years (this is easier said than done)

Yes, with a broker, you won't be able to panic sell. They'll stop you from doing stupid things. On your own, you've got to find a way to police yourself.